December 18, 2018, Magge Flynn, Skilled Nursing News - Gary Blake, the co-founder of the Texas skilled nursing operator Creative Solutions in Health Care, sees history repeating itself as the year turns over and the industry prepares for the new Patient-Driven Payment Model (PDPM). He started the company with Malisa Blake-Deane in the year 2000 with one facility.
Now the company manages 62 skilled nursing facilities, of which it owns the real estate of about 20%. Creative Solutions also recently entered a deal to take over the operations of 10 SNFs in the Lone Star State owned by the Nashville, Tenn.-based real estate investment trust (REIT) MedEquities Realty Trust, Inc.
Skilled Nursing News reached out to Blake to talk about the operator’s focus on Texas, the new Medicare payment model, and how Creative Solutions is navigating one of the worst states for reimbursements in the country.
Back in 2000, I had previously worked for some other large national providers. It was during the time of a lot of bankruptcies were going on — not only in Texas, but throughout the country. I had come across an opportunity, and I worked with an out-of-state owner on that exit out of that facility. That’s certainly how it started.
The landscape at the time was eerily similar, Maggie, to where it is now. There had just been a big change to reimbursement, [the introduction of the prospective payment system, or PPS], and as you know we’re going to into PDPM. So it is starting to look very similar, considering the number of bankruptcies in the last 12 months.
Can you walk me through Creative Solutions’ growth and acquisitions?
We had grown by 2006 to five facilities. At that point, we felt like we had a strong clinical program and a strong operational program. And we had the outcomes to demonstrate we were ready to grow, so at that point we started growing even more out in East Texas, and the growth has been more strategic. We started in Granbury [near Dallas] and then East Texas, so we grew that East Texas market for several years, and then opportunities became available out in the Panhandle, in Lubbock, and then quickly out in the El Paso market. Then Central Texas really started to take off for us, and then we started picking up facilities in Southwest Texas, like Eagle Pass, Del Rio.
We started off with private owners of nursing facilities, and we had our first introduction with a REIT in 2011. We deal with three different REITs now and have a great relationship with them; the rest of our facilities — I don’t have the exact breakdown — are a lot of private owners, private families.
Are you able to tell me which of the REITs you work with?
We work with LTC Properties, Inc. (NYSE: LTC), with Summit [Healthcare REIT], and we work with a private family REIT: Kading & Yellin. And certainly MedEquities.
Changing gears a bit, I wanted to ask about your market. MedEquities noted in its announcement of your deal that Creative Solutions is exclusively focused on the state of Texas. Why is that, and was that always the plan?
We had experimented in opportunities in Georgia and Arizona, only in the assisted living industry, and then we exited those markets several years ago. [For Texas], we understand the state, we understand the reimbursement, and that, believe it or not, really appeals to a lot of the private facility owners, families as well as the REITs — that we are not operating in multiple states, that we are just operating here in Texas.
The Lone Star State has some challenges in terms of the long-term care environment, and one of those is reimbursement. Can you talk about some of the challenges in the state and which ones have been the most pressing for Creative Solutions?
That really is the question of the industry right now: How do you survive in the second-lowest reimbursed state in the country? The first thing I will tell you is our vendor relationships are extremely important to us, and where we’re able, we use Texas-based vendors. So that is one of our first approaches.
The second approach in Texas, from just a strategy of how we manage the reimbursement, is that we maintain almost a 50:50 ratio of urban and rural facilities. Then the next step would be: We really try to cluster those buildings in the same geographic area, so for the most part all the mid-management in the company, all the consultants, all the people that travel, the majority of them spend every night in their homes and not in hotels.
So that is another strategy, is certainly keeping costs contained. And when people get to spend more time at home, in their own beds, turnover is lower in our mid-management, we feel like.
As far as strategies in our facilities to combat the low reimbursement, we also maximize technology and business intelligence platforms to the highest level that we’re able to do that. That is an ongoing investment in our IT technologies, as well as in our business intelligence software that we use.
What are some of the technologies you’ve found to be most useful in the skilled nursing setting in terms of keeping costs contained?
It’s proprietary software we’ve developed over the years, and that’s certainly been an investment that certainly pays off for us. Now certainly our clinical and financial software is PointClickCare; they’re great partners of ours, from a clinical and financial software standpoint. The rest of our internal software is proprietary.
How do you make the judgment that it’s better to go with internal software you’ve developed versus someone else’s product?
You look at costs, you look at maintenance costs. Business intelligence software is getting more and more affordable as competition heats up across the world; you can use programmers to help assist in writing the code. There’s a lot of opportunities to control those costs, and then you’re not plagued with monthly subscription costs that are just really becoming prohibitive.
One thing I’m curious about is related to Texas and the fact that it’s not a certificate of need (CON) state. Has that been a challenge for Creative Solutions, and if so, how have you managed that?
It is one of our largest obstacles. We really do need some new legislation in Texas. There are great opportunities here to certainly build, but what happens is you can have a perfectly running facility, and somebody new can come into town and disrupt an already stressed employment base. When a state runs less than 3% unemployment, we are all grappling for the same employees.
We are constantly under pressure to increase our quality performance. Creative is no different than any other company currently operating in this state and this environment. There has been, in the past, way too much building going on, and it doesn’t seem to be managed well, in that a building can have a moderate census, and then you look up and they are breaking ground on a brand new 120-bed, 140-bed facility. It makes no sense to us.
That sounds a bit odd.
It is extremely odd, and it actually works against quality in that certain markets only have a certain amount of people that live in them and you can only produce so many nurses, nurse aides, and cooks. We’re offering sign-on bonuses in virtually every employment category we have: housekeeping, dietary, laundry. It is one of our biggest struggles.
Has it always been this tough, or is it more of a product of the strong economy over the past few years?
I’ve been in the business since 1993; that’s when I was first licensed. And it’s been a tight market for employees — it is just now kind of stratospheric when it comes to the amount of openings that we have. We’re trying to drive quality, we’re trying to meet those metrics and it’s always been tough. So we’re working on new ways, better ways to retain our staff, because we know as a company that — and we preach this — when our turnover is up, our quality is down and we live by that. So we are constantly working to increase our quality by reducing our turnover.
What are some specific initiatives you’ve done to focus on that, particularly for front-line staff and direct care workers?
As the company continues to grow, a lot of nursing home senior management can lose the touch and feel of the employees, staff, and residents. So we work really hard to visit our properties. I just finished a six-week tour of visiting all 62 facilities around the state … Many of the operators in Texas that I deal with here in the business are very hands-on.
That’s the reason why they’re surviving today. I can rattle off owners and officers of my peers in the business in Texas that are doing exactly the same thing I’m doing; they’re in the buildings, they’re making sure that food programs are great, that their customer service is at the highest level it can be.
We’re very united in Texas. I have spent my entire career putting nursing homes in Texas, promoting other operators in Texas, and working hard to just make them stronger.
When it comes to the homes you go into, what do you look for in facilities that you might take over?
Demographics certainly play a huge part in our growth strategy. The age of asset certainly plays a part. The availability to hire and retain quality staff is an aspect, and certainly that would include making sure that our therapy partners are able to staff properties with physical, occupational, and speech pathologies. Then in select markets, where we have respiratory care and have respiratory therapists, it makes perfect sense to make sure that your growth strategy includes all those things in it.
What are your prospects for new facilities in 2019?
We have one new facility in our pipeline to be built in East Texas, and that announcement is coming soon. We’ve got to replace the building that we’re working on; we operate several buildings in El Paso. Our plan is to build and replace a current physical plant there in that market.
You talked about the changes you’ve seen when you first started the company. As PDPM gets nearer, what are your priorities, and what have you learned from the past as the new model gets nearer to implementation?
You can’t get started early enough when one of your largest payors is changing its entire reimbursement system. This certainly will affect our rehab vendors, our relationships with them, what makes sense for them. Everyone has to remain as healthy as possible. We do not want our rehab partners to go out of business; that is extremely traumatic.
And we certainly have no intention of going out of business. So getting started early on how those contracts look, how those contracts read, what your growth expansion looks like, if you’re going to be exiting some markets, how that looks — to get started early and to run side by side pro formas is key for us.
Can you talk a bit more about what that entails?
Sure. We pay our rehab companies by the minute, and Medicare pays us by RUG [Resource Utilization Group] levels. When that goes away, and we’re paid for just the care and the rehab, just a set amount, we have to look at the way we pay those therapists. We have to look at the way our pharmacy bills look, all of that. It would take longer than this call to explain how detailed and how deep you have dive into your contractual structures to make sure that it all works.
To come back to Texas, what makes it a unique environment for LTC, and are there any misconceptions about it? The impression I’ve had is that it isn’t an easy place to operate.
I think one of the things that makes Texas unique is it is the ultimate entrepreneurial experience with skilled nursing homes. The ability to start with one facility and grow to whatever size you choose, I think that sets us apart because the environment is difficult.
I think one of the misconceptions in Texas is that no one makes any money, that quality is hard to produce, and that we might come across as even unsophisticated. I think that is untrue. All of the providers across Texas have a great opportunity, and many of us achieve success, amazing outcomes, have very high return-home ratios for our patients, and run very solid businesses in this state.
What are you focusing on for the future of the industry?
Our opportunities in Texas are endless. We have an opportunity to work with a wide variety of insurance. We work with millions and millions of potential clients every day. We work with our vendors, our builders, remodeling companies, furniture and equipment companies. So many people move here from other states, great people with an enormous skill set to add to our existing workforce.
So we’re just really optimistic about the future. We have a lot of work to do with reimbursement, but we’re getting a lot of traction, we feel like, down in [state capital] Austin, to help bring about real, effective rate change for Texas.
I would just like to add that it is such an honor to work with my other peers in this business. We have so many of the similar goals: to achieve great resident outcomes, to achieve quality in our facilities, to increase our customer service and our consumer experience.